Foreign business groups support income tax reform

The Joint Foreign Chambers (JFC) said it supports proposals to reduce personal and corporate income taxes in the Philippines, saying this would increase investment and trade and result in higher total revenues.

“This position was stated in Arangkada Philippines 2010 and is consistent with numerous recommendations over many years by Philippine and international economists, contrary to the view of some that reducing corporate and personal tax rates will decrease total revenues and lead to a deficit,” the foreign business group said in a statement on Tuesday.

On Monday, President Benigno Aquino 3rd reportedly thumbed down the proposal, saying that the government did not have surplus funds to grant such tax relief.

The Philippines imposes the second highest personal income tax and the highest corporate income tax among the Asean-6 countries.

The personal income tax rate in the Philippines is 32 percent, while Thailand’s is 35 percent (reduced from 37 percent in 2010), Vietnam’s is 35 percent, Indonesia’s is 30 percent, Malaysia’s is 26 percent (to be reduced to 25 percent in 2016), and Singapore’s tax rate is 20 percent.

On the other hand, the country’s corporate income tax rate is 30 percent, while Indonesia and Malaysia’s are 25 percent, Vietnam’s is 22 percent (reduced from 35 percent in 2010), Thailand’s is 20 percent (reduced from 35 percent in 2010), and Singapore’s tax rate is 17 percent.

“There clearly is a pattern to reduce corporate and individual income tax rates in competing Asean economies to make their countries more competitive. The Philippines should not fall behind the regional trend,” JFC said.

Growing inequity
The country’s current income tax rates were set in 1997. However, adjustments have not been made frequently enough to remedy a growing inequity as more and more salaried workers are paying the highest tax bracket.

“Achieving the goal of lower income and higher consumption taxes is a process that will take a number of years. The current administration has yet to adopt a policy to make comprehensive changes in income and consumption taxes. Its sole major tax reform has been to raise taxes on alcohol, cigarettes, and tobacco,” the group said.

The JFC also advocates raising consumption taxes in parallel with reducing income taxes.
“However, we recognize that raising taxes can be unpopular and difficult to achieve close to national elections, especially the VAT [value added tax]which, at 12 percent is the highest of the Asean-6.”

At this time, JFC also recommends an increase in excise taxes in gasoline as fuel prices are expected to stay very low for at least several years.

At $45/barrel, crude oil prices in the world market have drastically declined to one-third of the $145/barrel price at their peak in July 2008. Lower gasoline prices have encouraged car owners to drive more, aggravating traffic and adding to air pollution in Metro Manila and elsewhere in the country.

Amend bank secrecy law
Also, the group is supporting the advocacy of the Department of Finance (DOF) to amend the Bank Secrecy Law (RA 1405) and strengthen the Anti-Money Laundering Act (RA 9160, as amended).

“A draft bill for the former should be submitted to the Congress as soon as possible, while AMLA amendments under consideration in the Congress have not been reported out of the committee. If approved, the Philippines would no longer be counted among three countries in the world (with Lebanon and Switzerland) as having strict bank secrecy laws,” JFC said.

Philippine revenue collection authorities would have better access to domestic bank accounts in order to strengthen their capacity to collect the correct personal income taxes from all taxpayers.

The AMLA amendment extends coverage to casinos.

“However, we do not think that the passage of the Bank Secrecy Law or AMLA amendments should be conditions precedent for passing the income tax reform proposed in the House and Senate,” JFC added.

The JFC is a coalition of the American, Australian-New Zealand, Canadian, European, Japanese, and Korean business chambers and PAMURI.

The group represents over 3,000 member companies engaged in over $230 billion worth of trade and some $30 billion worth of investments in the Philippines.

JFC supports and promotes open international trade, increased foreign investment, and improved conditions for business to benefit both the Philippines and the countries the JFC members represent.